December 2015

Mexico and other competing jurisdictions stand to capitalize from the monstrous megawatt rates Ontario imposes on manufacturers.

As an advocate for some of Ontario’s largest manufacturers, we fear the province’s long-term electricity plan is placing too high a financial burden on industry.

Our manufacturers are currently paying excessively high electricity rates for power the system doesn’t need; this surplus energy is then sold to our competitors in neighbouring jurisdictions (Quebec, New York, Michigan, Illinois) for a heavily discounted price. The math just doesn’t make sense.

Some of the big industries – pulp and paper mills, steel smelters and the like – have been able to control costs to a certain extent by shutting down production during the electricity system’s peak hours. But the majority of industrial customers have no options, no choice of electricity supplier and no ability to control their utility costs.

Energy is a significant cost for these companies. In their highly competitive environments, these firms cannot afford to raise prices to cover higher electricity costs. They operate with very tight margins. The effect of flat prices for their goods, and sharply rising energy costs, is grim. Profit disappears.

This trend results in two outcomes. They can close, further opening the door to suppliers south of the border. Or they can move to the United States or Mexico.

If this happens, the tug of suppliers moving south might prove irresistible to the large auto makers, who will find Canada a less and less attractive place for reinvestment or new investment. When they go, so go the customers for Ontario’s steel industry, and so on. It is a grim scenario, but a plausible one.

What we do need is to decide whether this pricing system makes sense going forward.

Electricity costs in Ontario are unlikely to ease. The province’s long-term energy plan calls for massive investment to prolong the lives of the Bruce and Darlington nuclear stations, starting in 2016, and lasting for 15 years. The cost, in multiple billions, will be borne by Ontario electricity customers.

The price for this regulated and contracted power is often higher than the wholesale market price. The generators must be paid, but the market is not producing adequate revenue to cover the payments.

To raise the needed revenue, Ontario has devised a mechanism called the “global adjustment,” a surcharge to the market price. For homeowners, it is invisibly blended into their rates. But businesses see it as a charge on their energy bill. It is visible, if not transparent. Not only does this added-on “adjustment” often more than half the energy bill, the amount is projected to rise and keep rising.

There were reasons why the system evolved in this way, and now is not the time to debate whether that evolution was wise or foolish. It is what we have.

In 2010, when industrial customers in Ontario were paying an average of 8.5 cents a kilowatt hour for electricity, the government created a rate class for large power users that rewards them when they reduce demand during peak system hours. This policy has proved highly effective in significantly driving down peak demand – avoiding the need for polluting and expensive fossil fuel generation, and reducing overall energy costs for all customers.

The “Class A” average rate for these large users, which includes commercial and institutional energy consumers as well as industry, has risen to 9.7 cents a kilowatt hour in five years, an increase of 14 per cent. But for “Class B” industry, such as auto-parts companies, sawmills and wood-product manufacturers, the rate has increased to 12.1 cents a kilowatt hour – an increase of 42 per cent.

The drop in the value of the Canadian dollar is providing some relief to Canadian manufacturers. But exchange rates can be volatile. And a low dollar doesn’t excuse the need for viable economic policy for industry and the electricity sector.

In the face of this uncertainty, we have the ability to exert significant control over domestic electricity pricing. It is time to ask: Is our current track the right one? Or is it putting our industrial sector at greater risk?

Our public policy-makers too often focus on the needs of energy producers in devising energy policy. But most Canadians, and Canadian businesses, are energy customers. As policy-makers in Ontario and elsewhere turn their attention to the energy sector, we need to make sure that they keep the interests of Canadians in mind.

November 2015

In my last post, I provided a brief overview of the state of Ontario’s manufacturing sector – where it stands, where it’s going, and what government and industry should do to build on its strengths and mitigate its weaknesses. This week, I want to focus in on one of the challenges facing Ontario’s large industrials – namely, the impact of rising electricity prices on business competitiveness.

How do Ontario’s industrial rates measure up to those of other comparable jurisdictions? AMPCO publishes an annual benchmarking report measuring Ontario’s industrial electricity rates against select Canadian provinces and American markets. Our analysis shows Ontario has the highest industrial rates in Canada and one of the highest industrial rates in North America. The disparity in electricity rates between Ontario’s Class A customers and the rest of Canada’s electricity markets will only continue to grow as global fossil fuel prices plummet.

In last year’s benchmarking report, our research showed Ontario had the highest industrial rates in North America. While New York and New England electricity markets have superseded Ontario for the highest industrial rates in North America, Ontario still is amongst the highest.

For Ontario, a large reason for skyrocketing electricity prices is the province actually faces a power surplus and pays other jurisdictions (at a loss for Ontario) to take the power it does not need. Increased fixed costs and declining demand are driving significant projected increases in Ontario electricity rates for industry over the next several years.

For those industries who have already found every possible efficiency in their energy use, next-level government policies should be aimed at maximizing Ontario’s surplus power and investing in energy innovation As electricity costs rise, industry is forced out of necessity to find efficiencies and cut down on energy use to remain competitive.

Earlier this month, Statistics Canada released the September job numbers showing a frustrating loss of over 12,000 manufacturing jobs. This is part of a long-term trend of an overall decline in the manufacturing sector in Ontario, leading The Economist to call it “the new rustbelt”. Experts agree these jobs are gone, and most of them for good, to jurisdictions in the south, the Midwest US and Mexico, and overseas, to China and elsewhere.

Now Ontario is left with how to staunch the bleeding and give the sector the tools to succeed amid global opportunities and challenges.

State of the sector

Ontario accounts for 46 per cent of Canada’s manufacturing output and 75 per cent of the province’s international exports. The decline we mentioned earlier began in the early 2000s with overall employment shrinking from a total of over 930,000 jobs to around 700,000 jobs by 2011 according to a report by the Mowat Centre. Manufacturing’s share of Ontario’s total GDP also declined from 23 per cent in 2000 to about 15 per cent in 2011. Over 80 companies announced plant closures or job lay-offs in the last decade with few of those jobs returning after production recovered. In sum, the sector has shrunk by 30 per cent and shed 300,000 jobs to date.

While this paints a gloomy picture, there is reason to hope for a rebound in the near future. The slump in Canadian oil prices has lowered our dollar and created cheap fuel prices, both shifts which could help the competitiveness of Ontario’s manufacturers. Our exports surged in June 2015 at their fastest pace in over a decade with huge leaps in consumer goods, metal ore, and non-metallic mineral shipments as the American economy rebounded. Ontario remains the number one jurisdiction for foreign direct investment in North America and there is every reason to believe that trend will continue with large infrastructure spending in play.

Even with this kind of optimism, these factors alone may not help recover our lost jobs from the rustbelt due to the increasing operational costs manufacturing companies are facing in Ontario.

AMPCO’s benchmarking report shows Ontario has the highest industrial electricity rates in North America. As new technologies and innovations improve production processes, businesses face increasing capital costs for upgrading equipment and facilities. On top of that, skilled labour costs, a new provincial pension plan and the incoming cap and trade program could also drag down competitiveness of the sector.

Although global conditions are favourable to our manufacturers, there is still much that stands in the way of success at home.

Broken telephone

Let’s go back to the beginning of the decline. At the outset, the Ontario government at the time tried to integrate its manufacturing priorities with its environmental ones. The noble, yet demanding pursuit led former Premier Dalton McGuinty to a plan to replace traditional plants with clean technology manufacturing to help drive his vision of a green economy. When the recession arrived in 2009, Mr. McGuinty put the green agenda to the side so the government could bail out the auto sector and provide targeted assistance to struggling manufacturers.

When Premier Kathleen Wynne took over in 2013, she continued with the support for manufacturing and for the green agenda, but less even-handedly. Her government helped provide funding for the Honda and Toyota plant expansions, but could not persuade Magna International or Jaguar to invest. Dr. Oetker expanded in London with $7 million in aid from the province, but Kellogg’s and Heinz shut their doors for good. Budget 2015 brought in more support for advanced manufacturing, but it was not enough for the 12 manufacturers who are proceeding with plans to downsize or close down completely over the next two years.

The business community in Ontario has found itself more often than not at odds with government policies. There is a clear mismatch in the priorities identified and communicated by both sides, leading to significant policy gaps. Thus, while the government is taking action on critical issues such as energy efficiency, taxation, and infrastructure—of benefit to business—manufacturers remain deeply concerned about rapidly rising electricity rates, and wait to see what (if anything) the government will propose to protect energy intensive and trade exposed (EITE) industries, of all sizes, as it moves to implement its climate change strategy and put a price on carbon.

W(h)ither manufacturing?

As we pointed out earlier, the time is right for the Ontario government to seize the moment and support a rebound in the province’s manufacturing sector by providing the transitional assistance industry needs to meet these challenges—but political will must drive the cart, not take the back seat. True, the province has provided targeted accelerator funding for advanced manufacturing upgrades and innovation, made significant investments in transmission lines, roads and other critical infrastructure, and poured millions into training a skilled workforce for the 21st century. However, the province has yet to provide a comprehensive strategy for boosting our globally competitive – but sorely battered – manufacturing sector. We may not be able to compete with low labour rates and lax environmental laws that some of our competitors boast, but we are second to none when it comes to having a trained, skilled and motivated work force and attracting entrepreneurs and investors whose vision has fuelled Ontario’s industrial development. We have the skills. We have the technology. We have the capability to compete with anyone in the world.

The province would do well to launch a strategic review now of the state of manufacturing and industry in Ontario, in collaboration with stakeholders, to identify and remedy what needs fixing, to prevent further decline, and to better position businesses for success in the global economy. This must begin with a frank discussion about the future of electricity costs and rates for industrial customers.

Government and industry should not be at odds over policy; we ought to be able to find ways to build on our existing strengths and to invest together in Ontario’s manufacturing future.

The Outlook is a semi-annual report on the state of the Ontario electricity system and its implications for industrial customers.

As we continue to advocate for industrial electricity rates that are competitive, fair and efficient, our forecast serves as an important tool to inform public policy on building an affordable and reliable electricity system for Ontario.

Looking Back

In 2014, overall industrial electricity costs were up, but so was industrial demand. Industrial customers consumed 19.5 terawatt hours of electricity, with the iron and steel sector registering the largest increase in demand at 12 per cent over 2013. Mining and petrochemical industries also saw growth in energy consumption, while auto manufacturing and pulp and paper demand continued to weaken, declining by 7.2 per cent and 10.5 per cent respectively.

As for industrial electricity costs, global adjustment costs and transmission rates were the biggest factors contributing to increases. Delivered costs for industry are expected to climb to $90 per megawatt hour in 2015.

At the same time, the total electricity supply continues to grow with existing installed capacity estimated to be 35,535 MW at the end of 2014.

Looking Ahead

Starting with supply forecasts, current net exports of electricity supplies will likely turn into net imports by 2020 due to retirement of the Pickering nuclear power units.

As a refresher, the Long-Term Energy Plan (LTEP) aims to refurbish Darlington and Bruce A nuclear units from 2016 to 2025, while Bruce B is scheduled to be refurbished in the period 2025-2031. As these units go out of service, the existing electricity surplus and hydroelectricity imports are expected to fill the supply gaps. Over 1,000 MW of renewable wind and solar power also is expected to come online by 2019.

Under the government’s current plan, nuclear and renewable energy are the two largest contributors to global adjustment increases after natural gas-fired generation. Delivered costs also will see an overall rise until 2032 with sharp rises in 2021 and 2027 as the nuclear fleet goes through refurbishment or is decommissioned.

The remaining piece of the forecast is the impact of future demand and supply on industrial electricity prices. AMPCO’s forecasts (based on the 2013 LTEP) show low growth in overall net energy demand from 140 TWh in 2014 to approximately 145 TWh in 2032. The LTEP is focused on bringing more renewable energy online by 2019 and investing in energy efficiency and conservation programs to help control demand until 2030. By comparison, the Ontario Power Authority predicted industrial electricity intensity will decline as Class A customers reduce use across-the-board and invest in energy efficiency.

The Big Picture

AMPCO’s forecast is directly impacted by new government policies. An update to the LTEP that is expected in 2016 could lead to significant changes in electricity rates for the coming years.

In the meantime, the Ontario government has made three major energy-related announcements in the last few months that could affect rates.

First, Premier Kathleen Wynne announced Ontario would be joining Western Climate Initiative partners Quebec and California in adopting a cap and trade system for greenhouse gas emissions.

Second, the government will be selling off a 60 per cent stake in Hydro One to private investors.

Finally, the seasonal electricity capacity agreement between Quebec and Ontario opened the doors to hydroelectricity imports from Quebec.

November 2013

The Association of Major Power Consumers is a not-for-profit organization that advocates for competitive energy rates for industry in Ontario.

AMPCO President Adam White, recently was invited to appear before the Ontario Legislature’s Standing Committee on Justice Policy. Below is a transcript of Adam White’s appearance before the Committee on November 5, 2013.

MEMBERS’ PRIVILEGES

ASSOCIATION OF MAJOR POWER CONSUMERS IN ONTARIO

The Chair (Mr. Shafiq Qaadri): Chers collègues, j’appelle à l’ordre cette séance du Comité permanent de la justice. Ladies and gentlemen, colleagues, I call the meeting to order. I invite our first presenter to please come forward, Mr. Adam White, president of the Association of Major Power Consumers in Ontario, who will be sworn in by our wholly able Clerk.

The Clerk of the Committee (Ms. Tamara Pomanski): Do you solemnly swear that the evidence you shall give to this committee touching the subject of the present inquiry shall be the truth, the whole truth and nothing but the truth, so help you God?

Mr. Adam White: Thank you very much, Mr. Chair. It’s my pleasure to be here today and to accept the invitation of the committee.

By way of opening remarks, I thought I would just introduce the Association of Major Power Consumers in Ontario to you, briefly. We are a not-for-profit organization. We represent the interests of Ontario’s industrial power consumers. We have 43 members, which together represent about 10% of energy demand in the province and spend about $1.5 billion a year on electricity. We represent Ontario’s leading companies in mining, pulp and paper, iron and steel, petrochemicals, cement and automotive. We like to say that we’re not just major power consumers; we’re major investors, we’re major employers, and we play a major role in the communities in which we operate.

Those are my opening remarks.

The Chair (Mr. Shafiq Qaadri): Thank you. We’ll begin with the Conservative side for questions.

Mr. Bob Delaney: I think it may be me.

The Chair (Mr. Shafiq Qaadri): Thank you. To the government side, Mr. Delaney.

Mr. Bob Delaney: But you’re welcome to, if you want to.

Ms. Lisa MacLeod: We’ll have some questions.

Mr. Bob Delaney: All right. Mr. White, thanks very much for being here today. As I’m sure you’ve been briefed, part of the mandate of this committee is going to be to provide recommendations to the province on how we can improve siting for large-scale energy projects going forward, in the future. We’ve asked you here as a government witness because you’ve had a long career working in the energy sector and extensive experience with government and regulatory bodies on behalf of the largest power consumers in Ontario, both in your current role and in the past as president of the Ontario Energy Association.

Just before I start in with my questions, could you perhaps expand a little bit on your career in the energy sector?

Mr. Adam White: Well, I’ve actually been following the electricity file in Ontario since 1990. When I first graduated from university, I worked here in Toronto for the Energy Probe Research Foundation and we put forward some testimony at the Ontario Energy Board in response to a rate application of Ontario Hydro. That would have been the summer of 1990.

Since then, I’ve had a lot of different jobs. I’ve worked in government at the Ministry of Environment and Energy and the Ministry of Energy, Science and Technology. I’ve worked for TransAlta during the development of TransAlta’s investment in Sarnia, the Sarnia regional co-generation project. I worked briefly, in 2002, as a power marketer with an American company called Mirant. Then I was the vice-president of public affairs and external relations with the Ontario Energy Association for a number of years and had the opportunity to serve as the acting president of the OEA for a short time. And for the last eight years, I’ve been the president of the Association of Major Power Consumers in Ontario.

Mr. Bob Delaney: As the president of the Association of Major Power Consumers in Ontario, you work to promote the development of an electricity system that’s reliable and affordable. As such, you would have knowledge, I assume, of provincial energy issues in Ontario.

Mr. Adam White: We do try to follow what’s going on. We are a lean organization. Our mission is simple: It’s to do what we can to advocate for lower delivered energy costs for industry. We seek electricity costs that are competitive here so that we can attract investment and jobs into the province.

Mr. Bob Delaney: How does Ontario’s current energy system compare to what we had at, say, the turn of the millennium?

Mr. Adam White: Do you mean in 2000?

Mr. Bob Delaney: Yes.

Mr. Adam White: It has been said that the electricity grid in North America is the most complex system ever devised by man. It is a complex system. Ontario is interconnected with its neighbours, as you will all know, and Ontario has a diverse supply of generation and a very robust high-voltage transmission grid. There has been significant investment in the sector since 2000, as you say. There is a saying: May we be blessed to live in challenging times. There is no end of interesting things to explore in this sector.

Mr. Bob Delaney: If you’re a major power consumer in Ontario today, are we better off now than we were 10 years ago?

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Mr. Adam White: I think that’s a subjective assessment and it depends on one’s priorities. Our concern is that the costs of electricity have risen over the last decade. If Ontario benchmarks high relative to jurisdictions with whom we compete and if our forecast is for escalation in electricity rates, that is of concern to major power consumers.

Mr. Bob Delaney: If the price is a function of the variables of supply and demand, in planning over the long term for electricity demand, are there benefits to having a surplus of supply?

Mr. Adam White: The rules around electricity system investment, the North American rules around reliability, require that all control areas—Ontario being a control area—are able to meet peak demand during the peak times, as well as provide a contingency or operating reserve amount. Because of its very nature, the fact that it is generated and consumed in real time and isn’t stored except for minor exceptions, it is intrinsic to the electricity sector to want to have some surplus of supply. The question really is how much. We have said recently that the most expensive generation is the generation that we do not need. Our concern is that there is an appropriate amount of contingency to have in the system, but beyond that, the costs really are and can be a burden to consumers.

Mr. Bob Delaney: You used a term that perhaps it would be helpful to define. You used the term “control areas” in North America. Could you just expand on the meaning of that term?

Mr. Adam White: I’m not a physicist or a power systems engineer, but the way that the electricity system is organized in North America is subject to regulation and there are overriding regulatory authorities in Canada and the United States. There is something called the North American Electric Reliability Corp., which sets standards for the reliable operation of the interconnected grid.

In Ontario, we have a system operator here that operates the grid within Ontario and directs the operations of the grid in Ontario, and the IESO interacts with other system operators. So “control area” is a term that refers to—for example, there is a system operator in New York that operates the New York power system, and New York would therefore qualify as a control area, and Ontario would be a control area and so on.

Mr. Bob Delaney: Okay. So when you use the term, you use the term mainly to apply to control on a regional level.

Mr. Adam White: That’s right.

Mr. Bob Delaney: You talked earlier about an electricity supply. Accepting what you said, that electricity is both generated and consumed in real time—in other words, the electrons are consumed in the same instant that they’re generated—and allowing for fluctuations in demand at peak times and the fact that generating plants are either offline because of an event or offline for plant maintenance, have you any thoughts about, system-wide, what level of slack is needed in the system to provide the optimum in reliability?

Mr. Adam White: There’s a lot in that question. First, it really relates to what is the optimal level of reliability. Not all customers require the same level of reliability. At home, for example, we can easily tolerate having some power outages in a year. The only inconvenience is to reset the clock on the microwave. But in some industries, especially those where electricity is part of critical environmental health and safety systems, such as underground mining, power outages really are much more risky. So the question, really, is what level of reliability for which customers and how that best is provided.

Most of the outages, actually, are related to issues that occur on the grid, not issues that relate to generation, so planning for reliability on the generation side, typically, is to provide enough generation capacity to reliably meet peak demand plus operating reserve, and providing for the single largest contingency on the grid, which would be the loss of a large generating unit.

Mr. Bob Delaney: You might be aware that the Ministry of Energy was recently consulting with Ontarians to discuss the future of our long-term energy plan. The last time I checked, the ministry had received more than 2,000 responses. Did you participate in any of the consultations?

Mr. Adam White: Yes. We consult with government on an ongoing basis. We have been, over the last number of months, looking into issues around long-term energy planning in Ontario and consulting with our members, as well as with people in government, about what our analysis finds with respect to long-term energy planning in Ontario.

Mr. Bob Delaney: What type of input or feedback have you offered to the Ministry of Energy in terms of the makeup of our energy supply?

Mr. Adam White: As I said, the challenging issue for the association is to make sure that we’re accurately reflecting the views of our members. We typically do not meet over the summer months. We did meet in September, we did meet in late October, and we are planning to meet again in November. We’ve shared our analysis with our members, and we are in the final strokes, I hope, of preparing the brief for our membership.

Our submissions to government really are focused on policies that will allow industrial customers to achieve competitive rates so that we can attract investment and jobs. There are two ways to reduce cost of power to customers: One is to reduce the cost of the system overall, and the other is to put policies in place that allow customers to reduce their own costs by more efficient demand management. We advocate along those lines.

Mr. Bob Delaney: What recommendations do you have with regard to diversity in the supply mix and its impact on the system?

Mr. Adam White: We haven’t made any specific recommendations about diversity of supply mix. I think it’s common sense that diversity in a portfolio is a way to mitigate risk. I like to think that we take a practical approach. The generation supply mix is what it is. The generation supply mix we have is the legacy of decisions that have been made in the past. We want to be sure, of course, that the system can operate effectively, and we are assured that the system can operate effectively. I don’t think there’s any magic to how much of the supply side should be met by any one generation source. The question is, with the sources we have together, can they be managed in a way which is effective to meet the overall purposes of the system, and we believe that they are.

Mr. Bob Delaney: Have you followed the levels of investment in power generation and transmission in Ontario’s electricity system over, say, the last decade?

Mr. Adam White: Yes, we have.

Mr. Bob Delaney: What do you think of the level of investment by the province in electricity generation and transmission during that time?

Mr. Adam White: Well, the province has made significant investments in generation: for natural gas plants to support the phase-out of generation using coal, to refurbish nuclear reactors, and to increase the amount of renewable energy in Ontario. All of those investments have been significant, and there have been significant investments as well on the transmission system and by distributors on distribution systems as well.

Mr. Bob Delaney: One of the things being considered by this committee in particular is the cancellation of the two gas-fired peak power generation plants in Mississauga and Oakville. Were you aware of those two cancellations?

Mr. Adam White: Yes.

Mr. Bob Delaney: Okay. Have you followed the work of this committee at all?

Mr. Adam White: Not very closely, I must say. I do read the newspapers in the morning, and so that’s been my primary source of information.

Mr. Bob Delaney: Are you at all familiar with the siting process that’s used by the Ontario Power Authority?

Mr. Adam White: I would say perhaps superficially. I do have personal experience working for a large generation company involved in siting and permitting a facility, as I said, in Sarnia, so I do have some knowledge of the process from that perspective. We haven’t followed very closely the work that the OPA does in terms of planning for and siting new generation. Our concerns are those of our existing industrial customers and the cost of power delivered to them.

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Mr. Bob Delaney: Have you seen any indicators from the province that suggest that the agencies responsible are looking to improve the siting of generation infrastructure?

Mr. Adam White: Well, we have said that we support the government’s recent efforts to move in the direction of more regional planning, with more local involvement. We support that. It is a complex system and it operates on multiple levels. There is the high-voltage grid which serves the province overall, and then there are local areas served by local distribution companies and transmission assets and generation. We think that it is appropriate that these local needs be considered on a local and regional basis.

Mr. Bob Delaney: Have you had an opportunity to provide your input through any or all of the Ontario Power Authority, the Independent Electricity System Operator or the Ministry of Energy?

Mr. Adam White: Yes. I mean, my job, really, is to represent our members’ interests with the government and public sector agencies, so that is where I spend a lot of my time.

Mr. Bob Delaney: Anything you want to expand on in that?

Mr. Adam White: Well, I am a member of the IESO stakeholder advisory committee, which meets a number of times every year to advise the board of directors and senior management of the IESO on the development of market rules and the evolution of the market. I’m a member of the Ontario Power Authority’s advisory committee on conservation. The work of that body is to advise the OPA board and senior management on policies to promote conservation and more efficient demand management.

Mr. Bob Delaney: Have you been involved in any information sessions or other things that might be helpful for this committee?

Mr. Adam White: Over the summer, the Ministry of Energy sponsored a number of stakeholder sessions and public meetings. I did attend one of the public meetings in Toronto.

Mr. Bob Delaney: What role do you think public consultations could play in the siting of energy infrastructure?

Mr. Adam White: My personal view is that it’s essential, and I think the matters that are before the committee help to support that point. We live in a society in which people expect to be involved in decisions which affect their lives and their communities. That expectation is basic and I think it’s powerful. The perils of improper or inadequate consultation, I think, are obvious to most proponents.

Mr. Bob Delaney: How could the various parties involved in public consultations—the regulators, industry, major consumers and the general public—maximize the process of public consultations and the siting of energy projects?

Mr. Adam White: I’m not an expert on planning and siting. Most of my views on this are from personal experience or instinct. My personal view is, given that Canadians and Ontarians expect to be consulted, they expect to be involved, they expect their views to be considered, that, as a proponent or as an agency considering an investment in infrastructure, there really is no alternative to early and often consultations with local communities. I don’t think there is a single right way to do it. I don’t think there is a formula to maximize it, as you put it. It will depend on the community. You know, we have willing host communities and unwilling host communities. People’s views on issues can change. It has to do with how comfortable they feel with what’s being proposed and how they feel it will affect their lives and their communities. I think it’s important to recognize that expectation and to work with people in local communities to make sure that their issues are heard and addressed.

Mr. Bob Delaney: How best could industry and the various agencies of government most effectively engage municipalities on siting decisions?

Mr. Adam White: Well, I’ve talked a little bit with folks at the Ministry of Energy about this. I think, as I said, we support the government’s recent efforts to promote more local involvement in siting decisions. I think that there are opportunities as well to improve local accountability for decision-making. I think it’s important that municipal planning processes take into account the need for electricity infrastructure to support those plans. I understand that the government’s efforts are moving in that direction.

The Chair (Mr. Shafiq Qaadri): One minute.

Mr. Bob Delaney: Okay. Anything else you want to expand on in that last answer? Talk about your understanding of what the government is doing to move in that direction.

Mr. Adam White: I don’t have specific knowledge of the details of the government’s plan. I understand that the OPA and the IESO worked together over the summer to prepare a number of recommendations and that those have been accepted by the government. As I said, I don’t have detailed knowledge of that, but I think that it’s important and it’s movement in the right direction to encourage more local involvement.

Beyond involvement, I think it’s important that local people feel that they are empowered in these consultations, that they are not simply being told what is happening but have an opportunity to affect the outcome. That is certainly our calculus on advocacy. We generally choose not to advocate on issues where we think we’ll have no ability to influence the outcome, and I think the same is true of local people. It’s important that there be clear processes and expectations of people involved in these processes, and that their concerns will be addressed—

The Chair (Mr. Shafiq Qaadri): Thank you, Mr. Delaney.

I’ll pass it to the PC side. Mr. Yakabuski, the floor is yours.

Mr. John Yakabuski: Thank you very much, Chair. Adam, thank you very much for joining us this morning. It’s always good to see you. I appreciate the work that you do in this industry and your association and the contributions they make.

I’m just going to pick up a little bit where Mr. Delaney left off. I’m not going to put words in your mouth, but I am going to make a little bit of a statement. If the government was to actually do what they say they’re doing with communities with regard to consulting them and allowing for more input with regard to the placement of energy projects, then it would be a positive development, but unfortunately, that doesn’t appear to be the case. If you talk to communities that are under siege by plans for the government to erect massive wind farms, you will get a different answer from those communities. We have at least 74 in the province today that have passed resolutions defining themselves as unwilling hosts.

When you look at the numbers, they’re still planning at least 5,000 more megawatts of wind. I think a reasonable question is, where are the willing hosts left to accept these kinds of developments into their communities?

One of the biggest concerns, I know in my time as energy critic—and we had many, many conversations over those years. The concern for your people, the number one concern, is the cost. They’re major power consumers. Power, electricity, is a significant portion of their operating overhead.

Just for the purpose of understanding here, Adam, where does your association membership come into play? Who qualifies to be a member of AMPCO?

Mr. Adam White: Our eligibility requirements are set out in the by-laws of the corporation. Membership is—

Mr. John Yakabuski: Is there a power usage threshold? That’s the one I’m getting at.

Mr. Adam White: Yes. Membership is open to companies that are engaged in industrial activity in Ontario with an average monthly demand over one megawatt.

Mr. John Yakabuski: An average monthly demand over one megawatt?

Mr. Adam White: That’s right.

Mr. John Yakabuski: To simplify that, most people involved in heavy industry, even medium industry—forestry, mining, manufacturing—those would be where your membership would come from.

Mr. Adam White: That’s right.

Mr. John Yakabuski: Some of those—for example, in forestry, probably 30% of the cost of doing business would be electricity. Would that be somewhere around the number?

Mr. Adam White: I don’t have the detailed knowledge of what the composition is. I know my members—it depends on the industry and it depends on the industrial process. I know in pulp and paper and ground wood operations it’s a significant cost. I know that in iron and steel, electricity is a significant cost as well. It depends on what industry and what process.

Mr. John Yakabuski: Right. What is the view of your membership, with respect to the effect on the cost of electricity, of the government’s Green Energy Act and the—

Mr. Bob Delaney: Chair, on a point of order.

The Chair (Mr. Shafiq Qaadri): Mr. Delaney, a point of order.

Mr. Bob Delaney: I am looking very carefully at the mandate of the committee and the Green Energy Act isn’t in it.

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Mr. John Yakabuski: Chair—

The Chair (Mr. Shafiq Qaadri): Thank you, Mr. Delaney. The point is well taken. I would invite you to confine your remarks to the mandate, although I do appreciate that it is a generalized energy question.

Mr. John Yakabuski: It is a generalized energy question, Chair, and we gave the government side an awful lot of latitude, which we could have been injecting with points of order on almost every question that Mr. Delaney did about the history of Ontario and some of the silliness of the Liberal policies. We tried to be respectful. If they choose not to, that’s fine, but we’re going to continue with the questions that we have to ask Mr. White. If Mr. Delaney wants to act like a child and inject points of order, I welcome him to do so.

Mr. Bob Delaney: Chair, you may not impute motive on behalf of a member any more here than in—

If I could ask you again: the view of the members of your association, particularly those people to whom the cost of power is of paramount concern to them being able to remain in business. What are their views on the cost of energy as driven up by the policies in the Green Energy Act?

Mr. Bob Delaney: Chair, on another point of order: The Green Energy Act is not being considered in this committee.

The Chair (Mr. Shafiq Qaadri): Thank you, Mr. Delaney. Mr. Yakabuski, thank you, and please continue. And I once again invite you to confine your remarks to the mandate of the committee.

Mr. John Yakabuski: The energy policies of the government that have driven up the price of power, which Mr. Delaney talked about quite a bit—you talked about the price of power in one of your responses to one of his questions, saying that one thing is certain: the price of power is way up. How do the members of your association view the policy decisions of this government? The relocation of, for example, the Oakville plant is one of those policy decisions, one that has added $513 million by itself. The cost of moving the plant to Napanee is a $513-million touch because of the gas transportation costs, the energy transportation costs returning etc. It’s a $513-million bill. What is the view of your membership with respect to those kinds of government policies, including the generation decisions of this government and how they affect their ability to manage their businesses?

Mr. Adam White: Well, as I said, I wouldn’t say that electricity costs are my members’ first priority, but it is the association’s first priority. I haven’t canvassed my members specifically on their views or opinions related to policies of the government of Ontario. We take an agnostic view to generation technology and fuel type. There is a wide range of generation technologies and fuel types that could be used, hypothetically, in Ontario to meet demand. Ontario isn’t blessed with the natural endowment of other provinces, such as Manitoba, Quebec or British Columbia. We just don’t have the topography and hydrogeology to support the kinds of electricity system outcomes that they are able to. We are in a situation of making difficult choices.

I do advise my membership that there are positive attributes of renewable energy. With wind power, for example, the fuel is free. The marginal cost of energy, once the generation is in place, is virtually zero, and we like that cost. The question is how the fixed costs are to be allocated.

We understand as well that this is a complex system and the decisions around it are complex. Electricity supply decisions are made for a variety of reasons, including social and environmental reasons, and we accept that. These are choices that Ontarians can make. I think that there are political decisions and there are policy decisions in some cases, and this might be the case with the cancelled gas plants. There are also the decisions of local communities.

Mr. John Yakabuski: Well, they weren’t the decisions of local communities. I think they may have had the opposition of local communities, but the decisions to cancel them were the government’s, and the government’s alone. They have the power and the authority to make such decisions. But that is a $1.1-billion bill, if you look at Oakville and Mississauga in total. That will be passed on to your members, correct?

Mr. Adam White: Well, there’s only one customer at the end of the day.

Mr. John Yakabuski: That’s right.

Mr. Adam White: Yes.

Mr. John Yakabuski: So are you suggesting they’re agnostic about that bill or they have no opinion on that bill, or do they have an opinion on that bill that they’re going to receive as a result of this?

Mr. Adam White: Well, I haven’t canvassed the AMPCO membership specifically on their reaction to the matter of the gas plants. We do talk about what the total cost of power is and what comprises that cost. There are policy choices across the spectrum of generation technologies and fuel types, as well as on the grid side, that affect future costs. I would say we are business people and we support business decisions. If there was a case for investment, even if it drives costs up, if the business case is made, then we will support it. It’s not just about lowest cost at any price; it’s about what is the business case for generation. Given that the gas plants were cancelled and the decision was taken to relocate them, then there are costs that naturally flow from that.

Mr. John Yakabuski: Would you have supported this business case, to relocate the gas plant to Napanee?

Mr. Adam White: Well, I haven’t seen a business case for it, so—

Mr. John Yakabuski: You haven’t read the auditor’s report on the relocation cost of either Oakville or Mississauga?

Mr. Adam White: No, I haven’t.

Mr. John Yakabuski: Okay. Thank you very much. I’m going to pass the questioning over to Ms. Thompson. Thank you.

The Chair (Mr. Shafiq Qaadri): Ms. Thompson.

Ms. Lisa M. Thompson: Thank you very much, Chair.

I’m interested in some of the work your association may have done. You said earlier that your membership represents companies with an average monthly usage of over one megawatt, and I would imagine an association looking at the ever-increasing cost of energy would be doing their own analysis as to, if energy goes up the projected 50% over the current price—well, 150%. Have you done an analysis over the scale, that as energy prices go up, a number of jobs, a number of companies leave Ontario. Have you done research and an analysis in that regard?

Mr. Adam White: No, not specifically

Ms. Lisa M. Thompson: Not specifically? Then, can you touch on the work that you have done to date?

Mr. Adam White: I think the most recent sort of macroeconomic analysis we’ve done was a number of years ago. Broadly speaking, one is likely to find correlations between input costs and investment and jobs, and electricity is one of those inputs. It’s not the only input.

I think as well, it’s fair to say that Ontario has seen a transformation in the nature of the economy and this is a long-standing phenomenon. It’s not new that Ontario has replaced jobs in heavy industry with jobs in knowledge-based industries. I don’t think that’s a new phenomenon. We are concerned that there are key industries in Ontario which we should seek to retain, and to do that, we need to find ways to deliver them their inputs at a competitive price.

Ms. Lisa M. Thompson: What industries would those be?

Mr. Adam White: Well, the industries that we represent: pulp and paper, mining, iron and steel, petrochemicals and automotive. Those are key industries. They are the backbone of Ontario’s economy.

Ms. Lisa M. Thompson: What kind of timeline do you feel is associated with retaining those industries? When will it be too late?

Mr. Adam White: Well, I’ve been in the file a long time, and people will be debating these issues long after I’m gone, I am sure. I have a strong sense of urgency that anything we can do now, we should do now, and the plans we make for the future should look at ways we can reduce the delivered cost of power for industry.

Ms. Lisa M. Thompson: Do you think the government’s listening to that?

Mr. Adam White: I do. I think governments of all stripes are attentive to the issues facing major industries. How to attract investment and how to create jobs in Ontario—I think those are important issues. I do think that the government has been receptive to our advocacy in the last number of months.

Ms. Lisa M. Thompson: Interesting. I want to talk about your concept of willing versus unwilling communities as well. It’s a file that I’ve spent a lot of time on. You talk of the most recent decisions to listen more to communities. Well, for goodness’ sake, with the amount of application and the amount of approvals that are happening right now on the renewable side, let’s be real: The government has realized their target number. So the idea of listening—

Mr. Bob Delaney: Chair, again, on a point of order—

Ms. Lisa M. Thompson: —be it gas plants or any other—

Mr. Bob Delaney: We are here, according to our mandate, to talk about the cancellation and relocation of the Mississauga and Oakville gas plants. There is a time and a place to consider any aspects of the Green Energy Act, but this is not that time or place.

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The Chair (Mr. Shafiq Qaadri): Thank you, Mr. Delaney.

Ms. Lisa M. Thompson: You were speaking about willing and unwilling communities. Give me a break.

The Chair (Mr. Shafiq Qaadri): I would simply ask that the remarks be confined to the agenda, but once again, we are talking about energy policy, and if you can relate this to the committee’s mandate, Ms. Thompson—

Ms. Lisa M. Thompson: That’s where I’m going.

The Chair (Mr. Shafiq Qaadri): —then I would allow the question.

Ms. Lisa M. Thompson: So with that, we’ve realized some target numbers, and looking at gas plants, willing versus unwilling, don’t you think the fact that they’re saying the words but they don’t need to walk the talk is disingenuous, and that they are just smoke and mirrors with communities?

Mr. Bob Delaney: Chair, you cannot use an unparliamentary word in committee any more than you can in the Legislature.

Ms. Lisa M. Thompson: Okay. So let’s talk about the willing and unwilling host communities for any source of energy in Ontario. When should we start listening to folks? Do we need to take a look back in our rear view mirror and see what has not worked and see if we should be listening to those communities that have already been imposed upon? I’ll cut to the chase.

Mr. Adam White: Well, I think it’s fair to say that the way we go forward ought to be informed by the way we have proceeded in the past. Part of, I think, what Ontario is dealing with now is a function of legacy assets and legacy decisions. To the extent that contracts have been entered into based on permitted sites, then their commitments have been made. So, really, the question is on a going-forward basis, to the extent we’re contemplating entering into new contracts or permitting new sites for generation. I think that the lessons of the past couple of years are an indication that things can be done differently and perhaps things can be done better with more local involvement and perhaps more local accountability.

I would say, my members themselves have a great deal of experience. Some of the industrial plant in Ontario is as old as some of our electricity infrastructure, and some of my members have some of the oldest electricity infrastructure in the province. The things that were tolerated 100 years ago in planning and siting are simply not tolerated today, and I think that that’s an ongoing process.

Ms. Lisa M. Thompson: Okay—interesting. With regard to the location of gas plants, last week we heard from the OPA that Napanee was at the bottom of their list. In your opinion, what could have been done differently in terms of making sure that electricity was located in a manner that spoke to keeping costs down, keeping the source of electricity closer to the consumer to manage costs a little bit better? In your opinion, did the government drop the ball by not listening to the OPA?

Mr. Adam White: Well, there are two gas plants, and the story of each is different. The original site of the TransCanada plant was chosen by the OPA. I wasn’t privy to the decision-making on that. I’m not knowledgeable of the details of the decision, why that site and proponent was chosen over other potential sites and proponents. I know that there was a competitive tender for the supply of generation in the area, electrically speaking. As part of the legacy of our infrastructure, if you want to build a natural gas generator, you have to situate it close to natural gas supply and also approximate to the electricity infrastructure to deliver the power to market.

Again, I don’t have the detailed knowledge why the Oakville site was originally chosen, why other sites were not chosen and why the Napanee site was chosen subsequently. I’m not sure of the details of that.

Ms. Lisa M. Thompson: Okay. When did you figure out, as many of us did, that the projected $40-million cost was nothing but hogwash?

Mr. Adam White: Well, without responding directly to your question, I don’t think it has come as a surprise to us that the price tag was what it was. At the very beginning, when the decisions were made, we knew from published accounts what the total contract value of the plants was going to be. And so I advised my members that in the worst-case scenario, the province could be liable for paying out the liquidated damages on the contracts.

The Chair (Mr. Shafiq Qaadri): One minute.

Mr. Adam White: That seemed to me like a worst-case scenario. So we weren’t surprised that the number fell somewhere between nothing and the worst case.

Ms. Lisa M. Thompson: Who do you think led the charge to bury the true cost of relocating the Oakville gas plant?

Just before we offer the floor to Mr. Tabuns, just with regards to some of the exchanges, I would invite you all to review the agenda; I presume you’ve all internalized that by now. I would just simply encourage you to—Ms. Thompson, Mr. Yakabuski and to my other colleagues, whatever questions you’re asking, be they on wind or nuclear or other matters, if they can be made relevant to the committee’s mandate, then it is game here.

Mr. Peter Tabuns: Following on your last answer, what was your worst-case estimate for the cancellation of the Oakville plant, in terms of financial damages to the province of Ontario?

Mr. Adam White: I can’t say that we made a comprehensive review of it. I wasn’t privy to or didn’t make myself knowledgeable of the details of the contracts. My understanding is, to my recollection, that our guess was that the total liquidated damages would be in the range of $1.2 billion.

Mr. Peter Tabuns: Okay, which is consistent with an internal email that I saw going between the Ministry of Energy staff and the Ministry of Energy political staff.

Were you ever consulted on the cancellation or relocation?

Mr. Adam White: No.

Mr. Peter Tabuns: Okay. By anybody on either side of this deal?

Mr. Adam White: No.

Mr. Peter Tabuns: Which demand projections do you rely on to give you a picture of where demand is going in Ontario in the next decade, and how would you characterize the demand picture?

Mr. Adam White: We make our own projections of demand on an aggregate, annual basis for the purpose of policy analysis simulation, more than anything else. My members do appreciate having our forecasts for production scheduling and informing investment decisions. Our demand projections are based on historical data and trend analysis, and my view is that demand is likely to be relatively flat in the coming rest of the decade, and has the potential to decline. Frankly, we see a lot of economic efficiency opportunities in managing demand more effectively than it has been in the past, to reduce peak demand during the peak periods in the summer, for example, and to increase off-peak demand during periods when we have surplus power.

Mr. Peter Tabuns: Okay. In your projections, will the Sarnia and Napanee plants be surplus to Ontario’s needs?

Mr. Adam White: Not necessarily. The gas plants that Ontario has contracted for, from a planning perspective, as I understand it, were not specifically procured to provide baseload or intermediate energy. They are there to meet peak energy needs. The reason that gas plants are suitable for that is that they have a low capital cost and then you take the risk on the fuel price to run when you need them to run.

Ontario, over the next number of years, is going to be managing through the refurbishment schedule of the Darlington and Bruce sites. As well, we are going to be integrating renewable energy, which produces power intermittently. We need gas plant capacity to provide insurance that Ontario can meet peak demand and balance demand, given those—I don’t want to say contingencies, but given the very abilities that we can see in the future.

Mr. Peter Tabuns: We’ve put a lot into these gas plants. We’ve spent a lot on nuclear refurbishment. Would you think that investment in conservation might give us some more cost-effective return on our investment?

0920

Mr. Adam White: Well, the OPA’s numbers suggest that conservation and energy efficiency is less expensive than other forms of generation. Of course, you know, as some say, you can’t power industry on conservation, but what we can do in Ontario is manage electricity demand more efficiently, to use less on-peak and use more off-peak, improve the asset utilization of electricity infrastructure overall and reduce the total cost of power to consumers. That is our priority, looking at policies that can lead to lower costs for customers.

We certainly think that with emerging digital technologies and their application to the grid, and with the emerging sort of policy and regulatory framework—not just here in Ontario, but elsewhere—that there are new and emerging opportunities to engage customers more effectively, and we certainly support that.

Mr. Peter Tabuns: Thank you. I have no further questions.

The Chair (Mr. Shafiq Qaadri): Thank you, Mr. Tabuns.

Back to the government side: Mr. Delaney, 10 minutes.

Mr. Bob Delaney: Thank you very much, Chair. Mr. White, talk to me a little bit about the importance of government’s role, either directly or through such agencies as the OPA and the IESO, in the siting of projects such as gas-fired peak power plants.

Mr. Adam White: Well, I’ve worked in government and I’ve worked in the private sector, in the not-for-profit world. Government has a role to play in Ontario. Government is accountable and has constitutional authority to make decisions in this area. We have framework legislation that guides that, and it is the purview of the Legislature to make law.

Our form of government does provide prerogative to the crown in making decisions, and I think that’s an important level of accountability, that these decisions are made in a political context. I think that is what Ontarians want. They understand that the job of elected officials is to represent their views, and I think that is the way it works in Ontario.

Mr. Bob Delaney: Okay. To bring the matter down, then, specifically to the two projects—out of 21 similar ones—that didn’t go well, in both cases there was a call for proposals. In both cases, the entities awarded the contracts, had responsibility to find a site zoned by the municipality for either industry or power production and to acquire the site. In the case of Mississauga, the city of Mississauga actually approved the use of the site for the purpose for which it was zoned: power production.

How would you recommend, in going forward with siting such large energy projects, that either the OPA or the IESO or the government better engage with municipalities on those types of projects?

Mr. Adam White: As I’ve said already, I think local involvement is important. I think that it makes sense to consider opportunities for more local accountability in decision-making. After all, this generation, this electricity infrastructure, is being built to supply the needs of communities, and the needs of communities are defined to a great extent by official plans and decisions of the municipality. I think it’s important when municipalities are planning their future that they consider the need for electricity infrastructure to support those plans. I think that’s the important thing.

I will say, though, that it’s difficult upfront to predict how the local people who live in the community are going to react to these proposals. Sometimes you’ll propose a piece of infrastructure and you’ll get a lot of local support, and other times you’ll propose the exact same piece of infrastructure and you’ll get a lot of local opposition, and that can change over time.

There is not, I don’t think, any magic formula for how to do that right or wrong. I do think that there are opportunities to do it better, and I think, generally speaking, it is through involving people in communities early and often in the planning process and making them understand that there are trade-offs. In many cases, there are choices—and difficult choices—that have to be made, and I have a great faith in Ontarians. Ontarians make good choices, generally speaking, and to the extent that we can inform Ontarians about the choices that are before us, I think we can count on Ontarians to make the right decisions.

Mr. Bob Delaney: Both the city of Mississauga and the town of Oakville had municipal plans that, at the time they were drawn up, had explicitly approved these sites; in the case of Oakville, for heavy industry, and in the case of Mississauga, it was zoned “industrial/power plant.” But in neither case were the municipal plans regularly reviewed.

In looking at the siting of energy infrastructure, or indeed, the siting of energy-intensive industry, have either you or your membership given any thought to recommendations to municipalities on reviewing their municipal plans to ensure that energy infrastructure, for example, is given the same weight as waste removal or water or sewer?

Mr. Adam White: I can’t speak to what my members may have considered or what work they may have done with local municipalities. I know that community relations are a very important component of the conduct of my members’ business. Our industrial assets are like electricity assets: They are long-lived. They do need the ongoing support of the local community in which they operate to continue to operate. That is the social licence that they need to seek and sustain.

Mr. Bob Delaney: In looking at the siting of energy infrastructure, do you have any recommendations that, in the future, could lead either the province or proponents or the IESO or the OPA to avoid making any siting mistakes?

Mr. Adam White: To go back to Mr. Tabuns’s questions around conservation, our advice to government in avoiding the difficulties associated with siting new supply is to focus policy choices on managing demand better. The less demand we have on peak and the more customers are engaged in managing their demand to support the needs of the grid, the less supply we need, and the less siting decisions are required. Those are superior outcomes for all of us.

Mr. Bob Delaney: Are there any jurisdictions that you know of, whether in Ontario or outside Ontario, that you feel Ontario could learn from regarding the siting practices for energy infrastructure?

Mr. Adam White: I don’t have any specific knowledge of that. I would say, though, that these are choices made by Ontarians in the communities in which they operate. There are checklists, there are processes and there are generic approaches to this that are used in other jurisdictions. I tend to think that Ontario has evolved a fairly sophisticated approach to permits and approvals for major infrastructure, but attitudes change. The attitudes of communities change and the attitudes of Ontarians change in terms of what they’re willing and unwilling to support.

Mr. Bob Delaney: Do you have any other recommendations for the committee on improving the siting of energy infrastructure in the future?

Mr. Adam White: As I’ve said, I’m not an expert on this. It’s not something that I’ve devoted a lot of time to. I do hear from my members. I do understand the importance they place on community relations. I think that is key. There are good proponents and there are bad proponents, and you can have two identical pieces of infrastructure that encounter completely different reactions in the local community. I think it’s important to note that these issues aren’t always generic. Some companies are better at this than others, and there are some communities that are more receptive to this than others. I think the key thing is to consult early and often with local people to design processes so that people have a legitimate expectation of what the outcome will be and how their views will be considered.

Mr. Bob Delaney: How would you compare and contrast a good proponent and a bad proponent?

Mr. Adam White: I think it has to do with—this is going to sound vague—a spirit of openness and empowerment of local people. We’re not here to tell you what we’re going to do; we’re asking your advice on what we might do. Those are two different approaches to the same kind of issue. Our members, I know, pride themselves on their community relations, and they work very hard to seek and obtain social licence for their investments. These are complicated facilities, with a range of potential effects in local communities, and they work very hard to make sure that local people are engaged and empowered to consult with them.

I think part of the challenge of this is that the general public tends to not be very aware of the implications of this infrastructure until they see it in their backyard, and then the question of how to inform and engage those people in that decision-making is a challenging one.

October 2013

AMPCO intervenes regularly in Ontario Energy Board hearings and policy processes, at the invitation of the Board or by seeking formal standing as an intervenor. As a consumer interest organization, AMPCO seeks and receives intervenor funding awards from the Board. These costs are borne by the regulated utility or applicant in a case, and ultimately by rate-payers. The Board has commenced a review of its approach to granting standing and intervenor funding for consumer and public interests. Below is a transcript of AMPCO President Adam White's submissions at the Ontario Energy Board’s stakeholder meeting on October 8, 2013.

Presentation by Adam White, Association of Major Power Consumers of Ontario:

MR. WHITE: I wasn't sure whether I should make a joke or not. I've been appearing at the Board since 1990. That's the first time I've got the chance to sit in the high chair, so I feel privileged, and I feel at an advantage for having gone last.

I have only a couple of slides, and this is the substance of our slide deck. I thought, since the Board was having a consultation on intervenor funding, and that AMPCO is a chronic recipient of intervenor funding, that I should be prepared to come and explain why that's a good thing, and to explain what we do. And there is, of course, what AMPCO does, and I have a simple mission, which is to reduce costs of delivered power for industrial consumers.

And I have a simple calculus for why we would intervene in a case; we would look for an opportunity to influence the outcome on a proceeding where the issues under discussion were material to our members, either directly, as in a cost of service proceeding, or indirectly, as a product of a policy discussion or a code or a guideline or -- and there are innumerable of these, like this one itself. Over time, I don't know exactly what the number is now, but there have been times in AMPCO's recent past where we have been managing more than 30 concurrent OEB proceedings.

So we're here to represent our members' interests, to promote outcomes that are superior, from their perspective.

I do also want to speak, though, about why we are here collectively. I know why AMPCO is in these proceedings. Every time we decide to intervene, that we make a conscious decision to intervene based on the matters that are before the Board in the proceeding and our perception of the risks that they pose to our members, either directly or indirectly. But collectively, we are here to provide a transparent process for public interest adjudication. That really is the overriding objective of the processes in which we participate. We bring our piece.

And the public interest isn't just the sum of the private interests, at least not in economics. I'm not a lawyer, but the public interest includes not only commercial and private interests per se, but also personal and philanthropic interests, that people in public interest organizations typically bring a lot of passion to their work because they are committed to a mission of helping others in the -- on the matters that they represent those interests.

AMPCO is not a charitable organization, and I'm not primarily in it for those reasons, but we feel very strongly that we bring a perspective on the public interest that is necessary to the process.

So how we do it is here in this slide. We've been, AMPCO has been intervening for longer than I have before the Board. In the very first rate case that I appeared in on Energy Probe's behalf in 1990, AMPCO was an intervenor, and our interests were quite hostile in those days.

I would add to this list of how we do things, we do have to manage funding. And I think one of the things that I've spoken to in the letter that I submitted but didn't provide any detail on are the financial challenges of being an intervenor in a Board process. Some of these processes are lengthy. They are nine months long. They have thousands of pages of prefiled material. There are multiple steps, typically multiple procedural orders, every one of them requiring us to do something or respond to something or read something or submit something.

And of course, we accrue these costs, these liabilities, and we have in past years accrued more of these liabilities, outstanding cost awards. We have to accrue them over year-ends, of course, which we always have to explain to our auditors. And we are always at risk of those costs not being allowed. And there have been episodes in the not-so-recent past where that has caused very significant problems for us.

So we have a very, I think, I hope, rationalized approach to how we intervene. We're looking for direct interests. We're looking for utility rate applications in which a member served by the utility. Then we talk to the member and we see if they have an interest in the application. If they don't, we don't intervene, unless, you know, sometimes there's a matter of policy. But typically, the reaction from utilities is where we intervene where we don't have a member on our list posted on our website, we get pushback or grief from the utility as to why we should be there on some indirect matter of interest to our members.

In addition, I would say to the challenges of being an intervenor is the simple management of it. We are involved in consultations not only at the OEB. There are at least a half a dozen items under consultation by the IESO. As well, we are involved in several ongoing processes with the IESO and with the Ontario Power Authority. At any given time, we're looking at five to 10 different applications ongoing before the Board. And some of those are working group processes that go on and on and on, and require quite a lot of staff and management support.

The challenge of doing this when your team is essentially a freelance team is trying to recruit for that team, and trying to sustain a good team of experts and others who can do this work for us. We do a lot of the policy work in-house now. One of the ways we've adopted to the risks we perceived of participating as we had before the Board was to bring a lot of the analysis in-house. Bringing evidence is increasingly expensive and risky to the Board, and so we bring that piece of it, as far as we can, in-house.

There is this presumption, the notion that intervenor funding is a drag on the efficiency of the sector, that it adds costs to ratepayers. Not only that, but it has some kind of nefarious multiplier effect that induces additional drag in the utilities' expenditures. And I think the falsity of the presumption is it's based on this idea that total costs would be lower if there were no intervenors in the room.

And the theory of regulation talks to -- and the literature is full of examples and we've all had -- all of those of us with a lot of experience will have some anecdotal examples that they can speak to, but the issues of regulatory capture, risk aversion and gold plating, these are the classic perils of regulation.

And one of the ways we manage those risks is by involving public interest intervenors in the process to bring transparency.

And that, in a way, is the regulatory compact. We are here to go through processes by which the OEB approves investments in assets, and expenditures which lead to profits in terms of equity and dividends for utility owners. That's the point. That's why we're here.

And we do that. And we've been doing that over the last decade at a rate that's greater than inflation, so presumably we've been doing quite well at it.

And I would say I wasn't present for all the presentations and I don't want to rebut anyone's presentation, but I do like the metaphor of the harvest. It is harvest time and the stores are full of apples, but we too are busy at harvest time. And one of the challenges in supporting a process like this and other processes is the multiplicity of processes.

We've been preoccupied over the past six months in making our submissions to the government on its long-term energy plan. That's not so much a harvesting process as a planting we hope will bear fruit when the government makes decisions about the long-term energy plan.

But here we are as well, foraging on ground already well harvested. But we're part of the ecosystem. And this was the last metaphor I'll inflict on you. We're not just a drag and a pest to be managed; we're an essential validation of the process by which utilities get more money, and I think that's just important to be clear on.

So we're part of an ecosystem. It's a complex ecosystem. Even if you forage on ground well harvested, you will sometimes come up with handfuls of grains. You know, that's the point.

I think one of the observations I would make is that we see altogether too much accounting and too little of the public interest in the Board's adjudication. It is the Board's job at the end of the day. The idea that intervenors should somehow be pushed together pre-hearing and forced into some kind of manufactured consensus so as to reduce the number of issues that the Board would adjudicate, it's the Board's job to adjudicate. The Board has a statutory obligation to adjudicate on the basis of just and reasonable, and to promote the interests of efficiency and to protect the interests of consumers.

And we did say in our submissions that we see in the rules, statute -- and its statutory authority and in its rules and guidelines ample scope for the Board to manage the behaviour of intervenors and the application of its processes.

And I would say, you know, that when we're thinking about it, the complex system that we're part of here today and the regulatory compact, that the Board itself defines these processes. You know, they're marked by complexity and technicality and by legality, and that gives rise to the reality that this is an elite practice.

I'm surprised by how many people are here today. It seems there are more elites than I might have thought. But there are a lot of people that come around this table and bring a lot of experience and a lot of education and a lot of credibility and reflect a legitimate public-interest perspective, even some of the utility people.

But if you want a process that's more efficient, and if you want a process that's less costly, where there's less perceived bad behaviour, then, you know, that's -- it's a function of the Board's proceedings.

One of the risks of bringing evidence as an intervenor is, do you subsequently lose all control over your cost exposure to the hearing because of the nature of the interrogatory process and cross-examination and undertakings and the need to respond to argument.

You know, so when your top line is my top line, you look at these costs very, very carefully indeed. And -- oh, I would say just as a closing point that there has been some talk about caps and pre-approved budgets and so on, and I do actually -- I actually have some experience in the world before the current model, when we intervenors lived according to the Intervenor Funding Project Act. And I worked at the Interim Waste Authority, and I worked at the Ministry of Environment when that act sunsetted, and that was all about pre-approved budgets and pre-approved experts and pre-approved evidence.

And I don't know, but my recollection is that those costs were quite high, and one of the reasons that they wanted to get away from that was to see if they could reduce the cost and pestilence of intervenors in processes. So be careful what you wish for.

December 2012

On December 7, 2012, Chair and CEO of the Ontario Energy Board (OEB), Rosemary Leclair delivered a speech at the Eggs n’ Icons Breakfast Series hosted by the Ottawa Chamber of Commerce and Ottawa Business Journal.

LeClair explored the need for regulators to be at the front of consumers’ interests. In order to do this, she says the top priority for the Board and others in the sector should be to close the gap between information and education.

LeClair believes regulators need to do more than inform consumers about bills and rate changes or answer questions. They need be proactive to help consumers understand the various elements and decision-making process of the organization.

She said the biggest challenge for the board is aligning different consumers interests with utilities interests while considering the overall public interest and the maintaining a long-term network.

The Board has been taking steps to ensure consumers’ interests are a priority. It has been working with other government agencies and utilities to organize how information is delivered to consumers and received from them. It is also reviewing application notices, online information and consumer outreach.

According LeClair, the new framework at the OEB is a performance-based approach to better deliver “value for money.” Utilities must meet end-user’s expectations for fair pricing and respond to their customers’ changing expectations.

The Board believes this new approach will help with energy literacy for consumers.

October 2012

It is an interesting time in Ontario politics with energy at the front and center of the debate.

Daily proceedings at the Ontario legislature were brought to a halt last week due to a contempt motion against Energy Minister Chris Bentley, a motion that took precedence over daily routine proceedings.

PC MPP for Cambridge Rob Leone brought forward the motion against Minister Bentley regarding the release of documents pertaining to the cancellation of two power plants in the Greater Toronto Area.

The Ontario government cancelled the Oakville power plant on October 7, 2010 and the Mississauga power plant on September 24, 2011. less than two weeks before Election Day in the province. The costs associated with the cancellations are significant: $190 million to Eastern Power for the Mississauga plant and $40 million to TransCanada for the plant in Oakville.

On May 16, 2012 the Estimates Committee requested documents on the cancellation of the power plants. Minister Bentley did not provide these documents.

Speaker of the Legislature Dave Levac on September 13 ruled that a prima facie breach of privilege was found. He said he would give the three parties in the legislature until September 24 to work out how to release these documents.

Minister Bentley released 36,000 pages of documents on September 24. Though the documents were released, the Opposition still moved forward with a contempt motion, as they believe not all the requested documents were released. Although is seems some documents were redacted, the Government disagrees and says they’ve done what was asked of them.

The Opposition parties, having the majority of the votes in the Legislature, voted in favour of the motion 53 – 50. The Standing Committee on Finance and Economic Affairs will now investigate and report back to the legislature on November 19, 2012.

The politics around this event is expectedly high. The tension in the legislature this last week did not go unnoticed. Media have been following this closely sharing their opinions such as Adam Radwanski’s take that the Premier’s indignation is only attracting more attention to the issue in the Globe and Mail and Christina Blizzard’s call for Premier McGuinty’s resignation in the Toronto Sun.

We await the findings of the committee, a committee with not only a significant task at hand but also an historical one. Never, in the history of the legislature of Ontario has an MPP been found in contempt.

June 2012

The Government of Ontario has announced a new industrial electricity incentive to use surplus power to attract new investors to the province to create jobs and foster economic growth. This is good news for Ontario. The risk and uncertainty of the forward cost of delivered power to industry in Ontario has provided a material impediment to new investment. By offering long-term rates, the government is removing that barrier.

Ontario experiences a significant number of hours where electricity system conditions reflect an increasing surplus of generating capability. In 2010 and 2011, on numerous occasions, these conditions gave rise to negative prices. These conditions also create operational challenges for the Independent Electricity System Operator. These challenges have led to discussions about technical opportunities to curtail nuclear, hydro and wind powered generators, with further talk about contract amendments and side payments.

The surplus power problem isn’t just limited to the few hours each year where negative prices occur. Ontario’s system load factor, currently at 69 percent, is projected to deteriorate over time. This will increase costs for all customers. The question of whether surplus power becomes a long-term problem all depends on the future demand for energy and the availability of base load generation. Unless something changes, Ontario may find itself in a position of surplus power for years to come.

Surplus base load generation is a big and growing issue in Ontario. While the solution is self-evident, Minister Bentley’s announcement is a sensible and well-crafted approach to engaging industrial investors in using the surplus power while we have it. The Ontario Government has made a significant move in the right direction.